Islamabad (TDI): The International Monetary Fund (IMF) has warned that the existing interconnection between the government, the central bank and the banking sector in Pakistan is harmful to the country’s economy and financial sector.
Banks loans government its bigger share of deposits and gets hefty return on it, their profits in last few years had been exorbitant and lending to private sector had gone down substantially.
This relationship can lead to conflicting policies, regulatory challenges and a debt-inflation trade-off, The IMF’s report, on the country’s recently approved $ 7billion EFF, said.
It added that Pakistan’s banking sector “holds the world’s largest proportion of government securities relative to its total assets”.
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In the last few years, the banks in Pakistan have funded a significant part of their growing securities portfolios via short-term central bank liquidity using bonds as collateral in the wake of limited deposit growth.
“This complex tripartite relationship means that developments or actions in one domain — fiscal, monetary, or banking — can have wide-ranging effects across the economy,” the IMF added.
Read More: IMF Approves $7 Billion Loan for Pakistan
The IMF said that persistently high fiscal deficits, coupled with the impact of recent external shocks, can significantly affect the sovereign-bank nexus in Pakistan.
The International Monetary Fund (IMF) approved a $7 billion loan for Pakistan in September with conditions for structural reforms:
The IMF wants Pakistan to implement reforms to address structural challenges, strengthen macroeconomic stability, and create conditions for more comprehensive growth.
 has warned that the existing interconnection between the government, the central ....Read More){kind=link}